Govt’s STT kitty seen highest in four fiscals on record market turnover

The STT tally could cross the R6,000 crore-mark with an average quarterly collection of R1,646.66 crore
clocked in FY15 so far

Amid an unprecedented turnover in the stock market, the government could see the highest collection from the Securities Transaction Tax (STT) in four fiscals. While the STT collected till December 2014, stands at R4,940 crore; this tally could easily cross the R6,000 crore-mark for FY15 if one takes into account the average quarterly collection of R1,646.66 crore clocked in FY15 so far.

In FY15, benchmark indices touched record highs amid overwhelming turnover as Narendra Modi’s overwhelming victory in the Lok Sabha elections revived hopes of a turnaround in Indian economy. The combined turnover across exchanges (BSE + NSE) including F&O and cash markets in the first three quarters of FY15 already stands at R596 lakh crore, highest for any fiscal so far. Similarly, the cash turnover and F&O turnover at R37.6 lakh crore and R558 lakh crore respectively, are the highest ever seen in any fiscal.

While the pick up in market activity will help the government meet its STT target of R5,991 crore for FY15, brokerages want STT on delivery-based transactions to be reduced. “Under the current system, delivery-based transactions draw highest STT rates. A reduction in STT rates would encourage retail investors to participate in the markets. However, we don’t want removal of STT as we want the capital gains tax exemption to continue,” said Alok Churiwala, vice-chairman of BSE Brokers’ Forum.

Under the current taxation framework 0.1% is charged on delivery-based transactions (purchase and sale). For intra-day transactions 0.025% is levied only on the sale side. For the F&O segment 0.017% of the option premium is payable by the seller, while the purchaser has to pay 0.125% of the settlement price. In the futures segment, the seller is charged 0.01% of the sale value.

The STT rates have been reduced in the past. In the union Budget 2012-2013, the then finance minister Pranab Mukherjee slashed the STT rate on delivery transactions from 0.125% to 0.1%. In the 2013-2014 union Budget, P Chidambaram cut the STT rates in the F&O segment. The STT was introduced in the 2004-2005 budget by Chidambaram to replace the long-term capital gains tax.

Market observers will keenly watch the upcoming Union Budget on February 28, hoping for further cut in the STT rates.